18.2          ndian       onom
                                                                         among the experts and the policymakers to expand
        IntroductIon                                                     the government’s role in the economy. This led to
     Public finance is a much wider title which includes                 the ultimate rise of the public sector around the
     all those matters which are connected with public                   world.3 Here we will be looking into the major
     money, i.e., the money a government gets, spends,                   concepts related to the area of public finance with
     borrows, lends, raises or prints. Public finance, i.e.,             special reference to India.
     finances of the government, now named as public
     economics, does not only discuss the issue that how                    Budget
     much of the country’s resources the government
                                                                         An annual financial statement of income and
     should acquire for its own use but also discusses
                                                                         expenditure is generally used for a government,
     the ‘efficiency’ with which the money should be
                                                                         but it could be of a firm, company, corporation
     used. Public finance gets reference in the ancient
                                                                         etc.4 The ‘word’ has its origin in the British
     treatise Arthashastra1 of Kautilya which covers
                                                                         parliamentary exercise of preparing such
     ‘treasury, sources of revenue, accounts and audit’
                                                                         statement way back in the mid-18th century from
     in a very detailed way. However, the subject has
                                                                         the French word ‘Bugeut’ meaning a leather bag
     gathered much significance in the post Second
                                                                         out of which the financial statement was brought
     World War period once the governments’ role in
                                                                         out and presented in the parliament. Today, this
     the economy started expanding2 due to various
                                                                         word is used to mean the annual statement in all
     reasons namely, the rise of public sector, the
                                                                         economies around the world.
     delivery of public goods, law and order, defence,
     etc. By the Second World War, the importance                             The Constitution of India has a provision
     of the government’s role in the economy was                         (Art. 112) for such a document called Annual
     urgently felt and it was believed that all needs of                 Financial Statement to be presented in the
     the people cannot be met if the economy is left to                  Parliament before the commencement of every
     the market (i.e., the private sector) in its entirety.              new fiscal year—popular as the Union Budget.
     For example, national defence, law enforcement                      Same provision is there for the states, too.
     and other major areas which must be cared for
     by the national government besides the supplies
                                                                         DAtA in the buDget
     of affordable or free healthcare, education, social                 The Union Budget has three sets5 of data for every
     security measures, etc., could only be taken care                   concerned sector or sub-sector of the economy:
     of by the governments (as they are not profit                             (i) Actual data of the preceding year (here
     driven). This is why there was an agreement                                     preceding year means one year before
                                                                                     the year in which the Budget is being
         1. L. N. Rangarajan (ed.), The Arthashastra, Penguin
            Books, (New Delhi, 1992).
                                                                                     presented. Suppose the Budget presented
         2. The size of government expenditure for the developed
                                                                            3.    It should be noted here that the world which had the
            economies stood at almost 10 per cent of their GDPs at the
                                                                                  form of the state economy (i.e., the socialist countries at
            begining of the 20th century—which could rise to 18 per
                                                                                  this time, majority of the economic activities were under
            cent only at the outbreak of the second world war—went
                                                                                  government control. As the communist form of the state
            for a steep rise by 1980 to 40 per cent. The government
                                                                                  economy emerged by the late 1940s (i.e., Peoples Republic
            expenditure was barely 9 per cent of the GDP in India at
                                                                                  of China, 1949), it had 100 per cent state control over the
            the time of Independence, nearly doubled in 1970s and
                                                                                  economic activities.
            reach 75 per cent in the 1980s—when questions were
            raised about their sustainability as revenue receipts failed    4.    Collins Dictionary of Economics, op. cit., & Oxford
            to grow adequately resulting in rising udgetary deficits              Dictionary of Business, op. cit.
            (see Amaresh Bagchi (ed.), Readings in Public Finance,          5.    Based on the budgetary documents of the Ministry of
            Oxford University Press, (New Delhi: 2005) pp. 1–4.                   Finance, Government of India, New Delhi.